Gov’t To Repay GH¢1.83bn External Debt

cashGovernment needs an additional GH¢1.83 billion, equivalent to $524 million to repay its external debt through additional external borrowing.

The amount will cover the repayment of the 2017 Eurobond, with an outstanding amount of $530 million which was partially repaid using the proceeds of the $1 billion Eurobond raised on international capital markets in an amortizing Eurobond in September 2014.

The remainder will be used to amortize and pay down short-term debt with a further GH¢2.8 billion in external debt billed to mature this year and finance capital expenditure, Minister of Finance, Seth Terkper disclosed this to Parliament on Tuesday in Accra.

Domestic financing decline risks
An analytical report on the Finance Minister’s mid-year budget review authored by Yvette Babb of ICBC Standard Bank, South Africa, said the decline in domestic borrowing requirements under the revised budget implied a substantial decline in the supply of government securities, borrowing from commercial banks and the Central Bank relative to the original 2015 budget.

‘This is also likely to limit the upward pressure on domestic interest rates that in our view, would have followed from GH¢8.7 billion or 6.4 percent of GDP outlined in the original budget. Net domestic financing will decline marginally to GH¢5.1 billion or 3.8 percent of GDP from GH¢6.1 billion in 2014.

‘We would, however, still argue that the room for yields on government securities to fall remains limited.

The high costs of borrowing for the government reflects tight liquidity conditions, but more important short-term liquidity and refinancing risks. Gross issuance of T-bills and Notes in the second quarter of 2015 amounted to GH¢11.5 billion, while maturities in T-bills and Notes over the next 3 months will amount to GH¢13.1 billion.’

Eurobond’s partial coverage
In June 2015, the World Bank announced that it will provide $400 million policy-based guarantee (PBG).

World Bank’s documentation revealed it will cover up to $1 billion in securities issuance.

The analysts said the coverage was undeniably likely to reduce the cost of borrowing on international capital markets, but Ms Babb added that it was the first time that World Bank has offered this instrument, with no experience to show how markets were likely to price the protection offered by a partial guarantee.

Inflows from two-year instruments
Commenting on the Central Bank’s announcement last week that it was working on the modalities to allow non-resident participation in the primary auctions for these 2-year notes, which is expected to be completed by the end of the month, she stated: ‘We argued at the time that these are unlikely to provide substantial foreign inflows, as these instruments are even more illiquid than government bonds. Increasing the size of the amount of offer through at least reducing the frequency from weekly as well as the introduction of benchmark issuances would assist in bolstering liquidity in these instruments.